Solutions looking for problems

In a recent post, I talked about how we have a meritocratic assumption about the dominance hierarchies in our societies in that we assume that the people at the top got there by merit. While this holds in some domains such as sports, it doesn’t generally hold in corporations for reasons described variously by the Peter Principle, the Dilbert Principle and the Gervais Principle.

We have a similar meritocratic idea about products in the marketplace; namely, the best product is the most successful. Alongside this is a story about how such products come to be. A classic example of that story is Apple computers. Jobs and Wozniak (mostly Wozniak)  developed a product called the Apple I. They received investment funding to get that product to market and then they used the money from the sales of that product to invest in an improved version, Apple II, and so on. Facebook, Google and Amazon all share a similar story where initial success in the marketplace is rewarded and the resources of that success are reinvested to get more rewards until next thing you know you’re some of the most valuable companies in the world.

This is the ideal story of product development. It’s the one everybody wants to be a part of just like every lawyer dreams of having the ideal case where their client is completely innocent and they must pull out all the stops to save them from the powerful forces that want to destroy them. However, for every ideal story there are a hundred “variations”. Jobs and Wozniak got investment money and used it to produce an actual product that was sold in market. Less scrupulous players might try to get access to that investment money without producing a product that goes to market, aka take the money and run. Incompetent players take the investment money and are simply unable to produce a product. This latter dynamic gave rise to the concept of Vaporware in the IT industry. Vaporware was a product that was always about to get built but never did. Self-driving cars would be a nice example of Vaporware. I remember it was about five years ago when everybody where I worked seemed convinced that self-driving cars were just around the corner. People were already discussing the supposed social and cultural changes that were about to be wrought by this wonderful technological breakthrough. Years later, not only are there no self-driving cars on the road but I haven’t heard anybody even talking about them anymore. That’s what happens with Vaporware. It is nothing more or less than the story that gets told about it.

A related concept to Vaporware is the solution-looking-for-a-problem. As the name suggests, this is a situation where you have some technology that does something but you haven’t yet figured out what that something is good for. Possibly the ultimate solution-looking-for-a-problem is the blockchain. The blockchain solves a theoretical problem known as the Byzantine Generals Problem. In that sense, it is a solution and it has been looking for a real world problem to solve for more than a decade. Countless words have been written in the media and countless pitches sold to investors and corporations trying to find a use for blockchain but, unless I missed the memo, the blockchain has not solved a single real world problem. The closest it has come is Bitcoin which arguably solves one part of the problem caused by central banks printing enormous sums of money since the GFC. Ironically, it is the same central bank money printing which has caused an explosion in the number of solutions-looking-for-problems as we will see shortly.

Let’s contrast the dynamic of the solution-looking-for-a-problem against the ideal story of product development using Apple computers as the example. The original Apple I was a kit computer. It did not have a keyboard, monitor or mouse. You had to buy those yourself. As a kit computer, the market for Apple I was limited to enthusiasts known as “early adopters” in marketing jargon. Although, it sold well enough to keep Apple in business, the Apple I would not have looked successful to an outside observer early on. In fact, it was well behind Commodore and other competitors in the market. Thus, there was nothing about Apple at that time that would have allowed anybody to predict that it would become one of the most valuable companies of all time. That’s why co-founder Ronald Wayne sold his share of the company to Jobs and Wozniak in 1976 in what is, in hindsight, one of the worst decisions ever made from a financial point of view. However, as Wayne has pointed out, he made the best decision at the time on the information available to him. Most of us would have made the same decision. It was simply impossible to predict what Apple would become.

Apple Computers didn’t look like much in the early days, but at least it had a product in market. By contrast, solutions-looking-for-problems are usually not products themselves. Rather, they are ideas and always ideas that are going to “change the world”. Sometimes, as in the case of blockchain, there is an underlying technology that can be used to build things like Bitcoin. Other times, as with self-driving cars, the underlying technological problems haven’t even been solved yet. The shared element in both cases is that the story being told about the technology dwarfs the real world results that have been achieved. In many cases, you have whole companies who don’t even have a product in market. They are funded not by revenue from sales but by investment money and this is where central bank money printing enters the picture because it drastically increases the amount of money available for speculative investment.

In the classic story of product development, investment capital might be required early on but it is always there to fund the sale of a product in market. It gets the ball rolling. Assuming investment money to be relatively scarce, investors will prefer a company that at least has enough competence to develop a product over one that does not. Any idiot can come up with an idea but it takes at least a modicum of know-how to turn the idea into a product. What happens when you massively increase the amount of investment money in the ecosystem by having central banks print enormous amounts of cash? One of the things that happens is that investors become far less picky and will happily fund anything. Another is that investors learn to make their money not by funding products in market but through stock market shenanigans involving IPOs. On the other side of the equation, ambitious people who want to get their hands on money turn away from the consumer market and focus on the investment market as an end in itself. Rather than compete in the consumer marketplace, they start competing in the investment marketplace. Because investors cash out based on the stock price, that becomes the marker of success not sales of a product. And because the stock price is more determined by central bank money printing than sales of products, the whole thing becomes a closed loop divorced from the real world.

If you are an “entrepreneur” competing for investment money, what you are selling is not a product but a story. There are all kinds of other players in the investment ecosystem who also have a vested interest in that story. Thus, the hype around blockchain was fuelled not just by “entrepreneurs” trying to access investment money but also IT firms looking to sell a “solution” to a client. In between are all the marketers and hype merchants who are paid to whip the whole thing into a frenzy. From the investor’s point of view, they cash out not when a product sells in the consumer market, but when a stock price is inflated so they also benefit from the hype machine which they hope will lure in suckers and drive up the stock price. Thus, investors are more likely to invest in the “product” that has hype behind it than one that does not. Over time, the whole investment ecosystem comes to run on stories and not reality and this is where the solution-looking-for-a-problem comes into the picture. It is just a story. It could work in theory but nobody knows, or cares, whether it works in reality. As long as the investment money keeps flowing, everybody’s happy.

As the volume of investment money grows, the story being told needs to grow too. It would be hard to justify an investment of $1bn for the development of a new type of screwdriver or coffee cup, for example. But $1bn for a technology that’s going to “change the world” can be justified. As the investment market grows and the hype grows, it attracts more ambitious people. A young Steve Jobs in 2022 wouldn’t bother with whatever the modern equivalent of a hobby computer kit is, he would get involved with blockchain, or AI, or machine learning, or whatever is the order of the day. The poster child of this modern dynamic is not Steve Jobs and Apple but Elizabeth Holmes and Theranos. The whole system is a fraud, of course. Enormous amounts of money go into creating very few products and the ones that do get created are mostly as worthless as a Theranos blood test.

Like Theranos, companies can trade on this dynamic for many, many years and thus it’s quite common these days to see companies that have been “in business” for years and even decades even though they have never released a single product to market. One such company was Moderna and, of course, the mRNA gene therapy technology is a prime example of a solution-looking-for-a-problem. Moderna struck it lucky in 2020 and was able to release a product to market for the first time in its ten year history albeit under “emergency use authorisation”. Whitney Webb has written an incredible long-read history of Moderna for those who are interested but the main themes sketched here are all present. For most of its history, the major threats to Moderna were from the media because the “success” of such companies relies solely on the story. If the story starts to go wrong, the investment money stops flowing and it’s game over. Thus, top management spends most of their time worrying about the “story” and the reputation of the company. They spend large sums ensuring the media stays on side. This leads to the subsequent corruption of the media not to mention the regulatory agencies and pretty much anybody else in the game who can be bought out. The more investment money that is available due to central bank money printing, the more everybody can be bought out and the more corrupt the system becomes.

The use of mRNA gene therapies as vaccines is an example of a solution-looking-for-a-problem. So, for that matter, is the PCR test. In both cases you have a technology developed for a completely different purpose and later adapted to serve a different purpose. There is nothing inherently wrong with that. Indeed, the history of the PCR is that it got used as a test for viral disease not because it’s perfect but because it has certain benefits over the older methods. Like any technology, as long as you know the pros and cons of it you can derive some use out of it. The pros and cons of the PCR test had been debated in the microbiological field for many years and people working in that field would know them. With corona, however, we jumped into the mass use of the PCR test and I doubt one in a thousand people, including the leaders of our countries, has any idea how they work let alone the potential problems involved with them. It’s even worse for the mRNA vaccines. At least the PCR has been in use for decades. The mRNA vaccine is as good as completely novel. Even the Health Minister of Australia admits we are in the middle of a giant experiment. We have no idea what the pros and cons are but, so far, the experiment looks to be a complete failure.

When we look back on it, it will be the failure pattern of the solution-looking-for-a-problem. It’s the same failure pattern we see with self-driving cars, with blockchain, with the internet of things and many others. It is the failure pattern of fraudulent late-capitalist marketing bullshit telling stories that have no correspondence to reality. The religious aspects of it occurs because we have lost touch with reality. We can no longer get results in the real world whether those results be a return on investment, the delivery of a product to market or the discovery of scientific innovations. In the absence of real world results, we turn instead to grand narratives and the grandest narrative of all: that we will conquer a respiratory virus. It’s quite likely that most of the people involved in that system have no idea how delusional they are. They were born into that world and it’s all they know. The fact that their narrative doesn’t correspond to reality is of no concern to them because it hasn’t mattered in the rest of their lives. The narrative is an end in itself and it won’t be until the real world intervenes that they will stop believing.

Just one month ago, Elizabeth Holmes was found guilty on charges of fraud. It took about four years to go through the courts. Maybe in four or five years’ time we’ll see some similar court cases around corona. I’m not holding my breath but you never know.